Energy use is the second-biggest operational cost for supermarkets and convenience stores. Only payroll demands more of their dollars. So, launching projects to reduce energy consumption would seem like a sure thing. But in an industry defined by slim margins, grocers and C-store owners are wary about the upfront investment.
There is a way to overcome those concerns, said Jonathan Tan, vice president of Energy Services for Hillphoenix’s The AMS Group. Store owners can use any of three financing methods to offset implementation costs and capture energy savings as soon as possible: on-bill financing, traditional financing and property-assessed clean energy programs.
Capture the ‘free money’ of on-bill financing
With on-bill financing (OBF), a project is funded by a utility company or third-party investor at a very low interest rate — perhaps even 0% — and is paid back over time on a store’s utility bill. In a nutshell, energy-efficiency projects essentially pay for themselves. OBTs equate to free money, and they’re available in about 20 states and counting.
After an on-bill financing project is completed, a store’s monthly utility bill includes the cost of energy used and a partial cost of the project. But because the energy-efficiency improvements lower how much energy a store uses, the total amount of the bill is roughly the same as before the project.
A few more selling points: Utility rebates and incentives may be available to offset the cost of OBF projects. Some OBFs can be structured to tie repayment to the property, so that the debt transfers to a new building owner or tenant.
“Once the project is paid off, the store sees lower utility bills,” Tan said. “But the benefits of the new equipment start immediately. Along with reducing energy consumption and costs, an energy-efficiency upgrade can reduce or defer maintenance costs and improve the store environment with more comfortable aisle temperatures and better lighting.”
Don’t write off traditional financing
Grocers and C-store owners shouldn’t dismiss traditional financing for energy efficiency projects, Tan advised. “A retrofit project costs money, but so does not doing a project — especially for grocery stores, where energy consumption is among the highest of all commercial buildings.”
A typical grocery store consumes most of its energy for refrigeration (56%), lighting (22%), and HVAC (12%), according to the U.S. Energy Information Administration. Data from ASHRAE shows related energy-efficiency upgrades in 50,000-square-foot store could reduce the electric bill by as much as $10,000 a month (based on 11 cents per kilowatt hour, kWh). That means the store is paying $10,000 a month to use more energy than it needs to.
“That’s a pretty compelling dollars-and-cents argument for investing in energy-efficiency improvements,” Tan said. “Financing for positive cash flow is likely to be more cost effective than paying for wasted energy.”
If a store’s loan is structured so the monthly payment is less than the money saved on the utility bill, that’s a clear sign that using traditional refinancing to make energy-efficiency upgrades makes good business sense.
“But even in a case where financing results in a monthly payment equal to money saved in reduced energy consumption, it still may be a good plan,” Tan said. “Once the loan is paid off, the savings from reduced energy consumption goes directly to the store’s bottom line and lessens the impact of future increases in utility rates.”
Go big with PACE funding for sizable projects
For larger energy-efficiency overhauls, store owners should look at funding option available through a property-assessed clean energy program, or PACE. Private investors cover 100% of upfront project costs, and the funds are repaid through property taxes. To date, 29 states and Washington, D.C., have adopted legislation for commercial PACE programs.
PACE features long-term financing terms, from five to 20 years depending on the project. Property tax assessments are tied to the property and automatically transfer to any new owner. And energy incentives, rebates and tax credits can be used to offset project costs or pay down a PACE loan.
PACE financing is ideal for the kinds of improvements that would allow a food store to generate at least some of its energy off the grid: rooftop solar panels, wind-power options, fuel cells, thermal storage and more.
“These kind of large-scale energy-efficiency projects were once thought of as nice-to-have improvements,” Tan said. “Now they’re like looking more like must-haves, and PACE can help make them happen.
“Supermarket and convenience-store owners must look past upfront costs when assessing energy-efficiency projects, no matter the scale,” he said. “They need to understand all the financing options at their disposal, and they have to compare the cost of a project to the money they can save by reducing energy consumption.”